Telefonica SA (TEF) Tuesday won the exclusive contract to sell Palm Inc.'s (PALM) new Pre smartphone in its European markets, adding to its tally of exclusive handset deals that already includes the popular Apple Inc. (AAPL) iPhone, as European mobile operators battle for a share of falling revenues in a saturated market.

The Palm Pre was launched in the U.S. last month and will be available in time for Christmas through Madrid-listed Telefonica's operations in the U.K., Spain, Germany and Ireland, the companies said. No details on cost or contracts were released.

The Pre is widely seen as a competitor to the iPhone, which has been sold by Telefonica in the U.K., Spain and Ireland since November 2007, in the process helping the company cement its top spot in the intensely competitive U.K. market.

All the European operators have exclusive deals to sell certain handsets in a bid to entice customers onto their network. Vodafone Group PLC (VOD) sells Research in Motion Inc.'s (RIMM) Blackberry Storm, while Deutsche Telekom AG's (DT) T-Mobile sold the G1, the first phone to run on Google Inc.'s (GOOG) Android operating system, exclusively in its markets.

It is all part of the battle for customers and mobile revenue, which has been stagnant or in decline as a result of competitive, regulatory and recessionary pressure.

First-quarter sales of all mobile phones fell 15%, according to Gartner Research, but smartphones, with their touch-screens and mobile computing capabilities, managed to buck the gloom of the recession, rising 13% in the same period.

Still, while the smartphone market has proved a boon for the handset makers who are fighting falling volumes, the operators have to dig deeper to subsidize these more expensive phones.

On average, operators across Europe must subsidize high-end phones to the tune of between EUR100 and EUR300, which they hope to recoup over the life of the customers contract, according to Gartner Research analyst Carolina Milanesi.

And even this model is beginning to change.

Telefonica's hard-won exclusive contract for the iPhone came with what the other operators viewed as punitive terms, including a share, reported to be up to 40%, of the revenue generated by each iPhone.

Still, it is unlikely that other handset makers would be able to command such generous terms, which is good news for the operators. And the iPhone, for all its cost, has given a very substantial boost to O2's U.K. business, which has consistently outperformed its peers in customer additions and revenue growth, even against the gloomy economic backdrop.

The Pre will add to Telefonica's stable of exclusive handsets, although Ovum analyst Tony Cripps said he thinks that even a heavily subsidized Pre, which is viewed as an iPhone alternative, would find it difficult to win high-end consumers when they are faced with the option of the real iPhone instead.

"Given its early stage of evolution, Palm would have been better off with a European telco partner that isn't already beholden to Apple," Cripps said. "Offering the two devices side by side looks like a one-sided fight to us."

One of the key drawbacks he identifies is the limited number of applications the Pre currently offers.

Compared with the 50,000 applications and 1 billion downloads that Apple has under its belt, at its U.S. launch the Pre only offered 18 applications, although that figure will undoubtedly rise by the time it is launched in Europe.

-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; kathy.sandler@dowjones.com